Welcome to the 4th and final part of the Music & Money series "How To Create A Personal Monthly Budget As A Musician."
*This information is based on my own personal experiences and research and is in no way professional advice. Before you make any kind of decision, financial or otherwise, you should get advice from a licensed professional.
Creating a personal budget for income that fluctuates can be difficult, but it's not impossible. After months of research, learning and reading, I created my own budget, and it has been working effectively for me for the past 4 years. I mainly use the strategies of the Barefoot Investor and Total Money Makeover books.
There will be a lot of information in this one to break this down into sections for you. Let's start with the 4 personal bank accounts you should have.
4 personal bank accounts you should have:
1. Daily Expenses Account = 100% of take-home pay: This account will be where all of your pay goes; it will also be where all of your bills come out of. You should aim at 60% of your pay being for daily expenses, like household bills, mortgage, phone, internet, groceries, fuel etc.
2. Savings Account 20%: You should have a savings account much like your business account. When your pay goes into your account, 20% of it needs to be transferred straight into your savings account. This is for things like a house deposit, paying off debt, or unexpected bills like a car breaking down.
3. Smile Account 10%: When I read the Barefoot Investor, he suggested 10% of your daily expenses income will go into your smile account for things that make you smile, big things like holidays, new furniture, a new car.
4. Splurge Account 10%: This account is, again, taken from the Barefoot Investor, and I love this account! It's called the splurge account. 10% of the daily expenses account will go into your splurge account. This is used for things like buying dinner, new clothes, getting your hair done, your daily coffee, small things for yourself.
I automate my accounts to have the money come out monthly. All of my bills and savings amounts are set up to automatically come out of my account each month. You can organise this on your banking website.
Onto working out your monthly budget:
Average your numbers: Take 3-6 months of business income and expenses, add them up, and divide them by 3. This will give you the average amount that you are making and spending on average on your business.
Now do the same for your personal accounts:
List your expenses and then average them for a monthly figure. Here are some examples.
- Electricity bill - add up all of your bills over the past 12 months and divide by 12. This will give you your monthly average.
- Phone Bill - Usually the same monthly cost.
- Groceries - Look at your weekly grocery bill over 4 weeks, add the total up and divide by 4, this will give you a monthly grocery average for your budget.
- Fuel - Add your weekly fuel up and divide by 4; this will give you your monthly average.
- Subscriptions - Add all of your Netflix, Apple, Spotify, Gym subscriptions up for the month to include in the budget.
Do this for all of your expenses and list them in a spreadsheet or use a budgeting app. I personally use both. The budget app I use is called FOLD, and it's amazing!
Running all of your numbers is essential for running a successful and profitable business.
It isn't easy trying to create a budget for yourself when you are self-employed. It is crucial to crunch the numbers. When I do my monthly spreadsheet, I have a column that I fill in at the beginning of the month called the PROJECTED and then the one that I complete at the end of the month called the ACTUAL; this allows me to create a budget for the month, so I know my expenses and how much I can spend, and then the actual column allows me to see where I went over or came in under my budget.
Below is an example of a budget spreadsheet that I have created.
This topic is much more in-depth than I have been able to into, but I hope these 4 videos have helped you understand how to run your music business more successful financially.
Download the FREE eBook and I'll show you how to go from where you are now to building your die-hard fan base, releasing music and doing what you love every day!